10 Trends that will Define NewSpace in 2018

Over the past decade, the space industry has seen a gradual transition from an industry populated almost exclusively by governments and large corporations toward something more decentralized and accessible. Falling launch costs, the proven utility of smallsats, and strong investment in startups had resulted in steadily increasing optimism about the future of commercial space. It's tempting to say that 2018 will be the year where commercial space proves itself, and here are 10 reasons why.

1. Big Returns from Smallsat Launchers

In January of this year, Rocket Lab launched its Electron rocket into orbit from New Zealand, successfully deploying three commercial CubeSats into Low Earth Orbit (LEO). Rocket Lab may be the first of this new breed of smallsat launchers targeting commercial satellite payloads of less than 500kg, but it's certainly not alone: Vector Space Systems test launched a full-scale prototype of its Vector-R launch vehicle (designed for 66kg payloads) in late 2017, while Virgin Orbit is working toward 300-500kg payloads with its Boeing 747-based in-flight launch system, scheduled for a first flight in early 2018.

Rocket Lab's recent success is an initial validation of both the technical and economic feasibility of privately-funded smallsat launchers, and not just for commercial payloads — one of Virgin Orbit's first customers will be the U.S. Department of Defense (DOD). It's likely that we'll see more companies entering this market as smallsats prove their utility and cost effectiveness, resulting in competition that will benefit customers in two significant ways. First, launch availability will increase, meaning more satellites in orbit faster. This alleviates the risk of launch delays while helping narrow the gap between manufacturing satellites and generating revenue. Second, more launch options will force smallsat launchers to compete with each other, driving down costs.

Historically, launch costs have been exorbitant, with two companies (United Launch Alliance and Arianespace) effectively holding a duopoly on commercial launches. SpaceX has disrupted this by offering Falcon 9 launches at prices considerably lower than its competitors. It seems inevitable that smallsat launchers will follow this business model of success through aggressive competition on price.

2. Late-Stage VC Investment Starts to Pick Winners

Rocket Lab’s recent success may serve as an inflection point for investors in NewSpace companies. By reaching orbit and delivering commercial payloads, Rocket Lab has moved beyond proof-of-concept and technology demonstrations. In an increasingly crowded field of hopefuls we may see venture capital dollars shift from seed and series A rounds to later stage, less risky investments. This applies to verticals beyond smallsat launch, including Earth Observation (EO) and Synthetic Aperture Radar (SAR). In fact, this shift would be in line with trends in the broader entrepreneurial community, which is already experiencing a precipitous drop in early- and seed-stage round activity for technology companies.

3. Selective Pressure as the NewSpace Launch Sector Matures

Investors inject capital into startups to help hit critical milestones and prove their business cases on the path to delivering products or services to paying customers. If we do see a shift away from early-stage investments toward less risky investments, then the pressure for companies that have already raised venture capital to hit those milestones and burn down their risk will be that much greater. In that scenario, we may see startups that lag behind their schedules fade away in a tighter fundraising climate. Additionally, hardware companies have their own challenges, of course, and as they move from research and development to commercial deployment, they may discover that the theory underpinning their core technology isn't as straightforward as they thought.

4. Broadband LEO Megaconstellations get Serious

There are a number of companies who have expressed interest in developing Non-Geostationary Orbit (NGSO) satellite constellations to provide pervasive high-speed data communications services. In 2016, OneWeb petitioned the Federal Communications Commission (FCC) for use of the Ku-band portion of the spectrum, sparking additional filings from SpaceX, Boeing, ViaSat, Telesat, LeoSat, and others. Many of these companies are planning constellations of thousands of satellites, representing a huge economic opportunity for smallsat launch companies.

OneWeb's petition was approved last year, and the FCC says that it hopes to approve many more constellations. Once they do, that company has just six years to begin using that spectrum. The clock is ticking, and smallsat launch companies will need to be ready. This year we'll see who's serious about developing megaconstellations, and who's just sitting on spectrum.

5. Earth Imaging Companies Extend their Competitive Advantage

Established companies have a significant competitive advantage in the Earth imaging space, due to expertise and infrastructure that allows them to expand when possible and pivot when necessary. Hyperspectral imaging and SAR are lucrative technologies that can be deployed on smallsats, appealing to new markets that may not have previously considered satellite imaging. Additionally, Earth imaging companies are beginning to move beyond data collection into data analysis. The massive amount of data that these satellite constellations acquire will need to be interpreted and converted into actionable information, a market that is projected to grow nearly 30 percent annually over the next decade.

6. First Made in Space Product gets Sold on Earth

Made in Space is currently test-manufacturing high-purity ZBLAN optical fiber aboard the International Space Station. ZBLAN has superior optical properties over conventional silica optical fiber, but manufacturing it without impurities is difficult — except in microgravity. In partnership with NASA, Made in Space hopes that a successful test will eventually lead to the manufacturing of ZBLAN optical fiber at larger scale on-orbit, representing the first step toward a commercial space economy. We may even see the first instance of a customer buying product manufactured in space.

7. Advances in Satellite Servicing and Repair

Even if competition drives down launch costs significantly, it will still be much more cost effective to repair or upgrade satellites in space rather than replace them. DARPA has been working on this concept for years, and recently signed an agreement with SSL to collaborate on a servicing spacecraft that is scheduled to launch in 2021. Orbital ATK is working through FCC approval to send a servicing satellite to relocate an old Intelsat communications satellite. And in 2020, Effective Space will launch a pair of 400kg service satellites capable of attaching to larger spacecraft and providing station keeping and attitude control. Considering the level of positive reception the concept of satellite servicing has been getting, it seems likely that more companies will enter this space, relying on smallsats as service vehicles. Additionally, NSR just released its first report on In-Orbit Servicing Markets (IOSM), in which it forecasts a total market of more than $3 billion in the next 10 years.

8. Space Startup Activity Increases in China

China may not have allowed private companies to build and launch satellites until 2014, but the country is now determined to grow its share of the commercial space industry from 3 percent to 10 percent by 2020. As success stories emerge (even in the preliminary contexts of funding and regulatory approval), new entrants into the commercial space sector will crop up. As U.S. companies are barred by export-control laws from launching on Chinese rockets, American launch providers may find growing competition for international customers.

9. In-Space Propulsion Powers up

Over the past few years, several startups have been developing in-space propulsion systems that primarily target the smallsat market. Novel, compact, and highly-efficient propulsion is critical to the future utility of smallsats: for increasing lifetimes, constellation phasing, end of life de-orbiting, and other maneuvers critical to mission success. In 2018, expect to see the first on-orbit demonstrations of these systems.

10. Renewed Focus on Defense Spending for Space

]Over the past few years, a narrative has been growing in the defense sector about risks associated with the government’s procurement processes, current space-based assets and overall resiliency as it relates to space operations. Many connect these risks to the defense spending downturn that started in 2010. Reports show that Pentagon contracts for space systems dropped from nearly $10 billion in 2009 to just over $6 billion in 2016. This reduction in spending led to 17,000 vendors exiting the defense business from 2009 to 2016.

As other nations expand in-space capabilities, we may see the narrative around current vulnerabilities or stagnating innovation translate into more concrete policies and budget decisions aimed at improving current infrastructure and processes. If implemented, those spending increases could lead to a much more vibrant space sector economy.

Within the context of lowering costs and increasing flexibility, the DOD is committed to continuing innovation. This translates into exploring how the commercial space industry can be leveraged to provide affordable, on-demand imaging and communications services.

What makes 2018 unique in the history of NewSpace are the number of companies that are tangible, funded, and working toward significant milestones this year. For many of them, the progress that we'll see this year will impact the entire industry, whether it's making space access faster and more affordable, making smallsats more useful, or selling products and services to sectors that may never even have considered what the modern commercial space industry has to offer. It's clear that we're advancing toward an inflection point in NewSpace that will have global implications, and now is the right time to get excited about it. VS